After the implosion of a little-known investment firm saddled banks around the world with billions of dollars in losses last week, one big question is being asked all over Wall Street: How did they let this happen? The answer may stem from the way the firm, Archegos Capital Management, with ample assistance from at least half a dozen banks, made bets on stocks without actually owning them. Archegos used esoteric financial instruments known as swaps, which get their name from the way they exchange one stream of income for another. In this case, Wall Street banks bought certain stocks Archegos wanted to bet on, and Archegos paid the banks a fee. Then, the banks paid Archegos the stocks’ returns.

Source: International New York Times April 01, 2021 00:11 UTC